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It's Not Just Fear Itself

Morning Briefingby Yardeni Research 68 Wheatley Rd. Glen Head, N.Y. 11545 Nov. 8: If the fiscal cliff isn't averted, investors will be even more worried about the outlook for the global economy. A recession in the U.S. would greatly exacerbate Europe's recession and increase the odds of a hard landing in China. If this apocalyptic scenario is postponed for a year with a deal in Washington, as I expect, then yesterday's plunge in the S&P 500 could be followed by a significant year-end relief rally back toward the year's high of 1465.77 on Sept. 14. I haven't given up on a year-end run toward the record high of 1565.15 on Oct. 9, 2007.

Rather than Apocalypse Now! it should be another Apocalypse Later! As I've observed numerous times since the beginning of the latest bull market, it has been a series of relief rallies following the postponement of all sorts of apocalyptic scenarios. Investors have had plenty to fear besides fear itself. -- Ed Yardeni

Welcome Impasse in D.C.

The Weekly Speculatorby Oscar Gruss & Son 292 Madison Ave. New York, N.Y. 10017 Nov. 8: As for the impact of another term of what has been a largely disappointing administration, we view this as a negative force, but not one that will ultimately derail the current cycle. We are reasonably happy with the gridlock between the President and the House, since this ensures that neither side will be able to pass the sort of outlandish measures that both extreme wings are capable of believing to be sensible policy.

A repeat of the last two years of fulsome rhetoric and empty action may not seem appealing, but it is preferable to the "strong mandates" that emerged out of the 2004 and 2008 elections. -- Michael Shaoul, Timothy Brackett

Funding From the Cookie Jar

Will Consumers Pick Up The Pace?by Regions Financial 1900 5th Ave. N. Birmingham, Ala. 35203 Nov. 8: Household balance sheets are in better condition than was the case at the end of the Great Recession, but it is also true that there is further to go before they can be considered healthy. Moreover, growth in real disposable personal income remains middling and, at its current rate, is simply not supportive of a meaningful and sustained increase in the rate of growth of consumer spending. To this point, the personal saving rate fell sharply during Q3, ending the quarter at 3.3 percent compared to 4.4 percent at the end of Q2. Clearly, the pick-up in retail sales during Q3 was financed in part by consumers dipping into savings. -- Richard F. Moody

Water-Profits Mirage

Thirsty for Blue Gold?by Dow Theory Forecasts 7412 Calumet Ave. Hammond, Ind. 46324 Nov. 8: In 2005, the last year for which the U.S. Geological Survey released statistics, America used about 349 billion gallons of freshwater per day, roughly flat with 2000 and down 4% from the peak in 1980. While the population has risen, a combination of conservation, regulation, and new technology has contributed to lower per-capita water use. Our take: Per-capita water usage will probably continue to fall, limiting revenue- and profit-growth potential for water utilities. -- Richard J. Moroney

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